Carbon Market Watch Recommendations for SB-38, June 2013

At the upcoming Bonn Climate Change Conference from 3-14 June 2013, Parties will negotiate issues related to carbon markets under the Subsidiary Body for Implementation (SBI 38) and the Subsidiary Body for Scientific and Technological Advice (SBSTA 38). Countries will also meet to discuss a future climate agreement under the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP 2-2).

Demand for carbon market units is at an all-time low. In 2012 the markets for both the Clean Development Mechanism (CDM) and Joint Implementation (JI) have collapsed and prices, currently at below Euro 0.4, may not recover any time soon. Prices are too low to finance low carbon technologies.

The upcoming UNFCCC intercessional gives Parties another opportunity to raise their mitigation pledges and to address the current oversupply of offset credits from both the CDM and JI. This oversupply is in no small part due to the lack of sufficient quality restriction which has led to hundreds of millions of offsets being issued that have limited or no environmental integrity. This year Parties get a chance to improve the quality of both mechanisms, as they are scheduled to revise both the rules that govern the CDM and JI.

While established carbon markets are faltering, policy makers all around the world are planning to implement new market schemes. China, California, Korea, Chile, Quebec and Japan are just a few of the regions and countries that are planning their own carbon offset or cap-and-trade schemes outside the Kyoto Protocol. The World Bank’s Partnership for Market Readiness (PMR) is fostering the development of such new market schemes. Under the UNFCCC, countries are negotiating if and how such new carbon markets should be governed internationally and how traded units should be accounted for so that their units can be counted for compliance of targets both under the Kyoto Protocol and the Convention. In Bonn, countries will also continue to discuss whether and how new carbon markets and their units should be approved both under the Framework for Various Approaches (FVA) and through the New Market Mechanism (NMM).

It is vital that existing carbon markets are reformed and new ones designed in way that ensures the environmental integrity of carbon market units and their accounting. Carbon Market Watch will be following the intercessional in Bonn and has developed recommendations on the following issues: